High quality bonds (Treasuries) and Cash are the most "diversifying" assets available (more so than commodities, emerging markets, international, etc. whose correlations to the US stock market are much higher these days and even higher when markets go down when you want the uncorrelated/diversification the most) but the "expected returns" of high-quality bonds and cash are much less than other more riskier asset classes.
So, should emerging markets and the next level, frontier markets (smaller countries that are just now coming onto the world scene over the past 5 years or so), be considered not only for their uncorrelated opportunity but also for their higher expected return?
Maybe. Again, the percentage of your portfolio that you apply to this should be in the 1-5% range and you want to stay consistent. Not moving in and out but always having a presence once you start. If "emerging markets" did 30%+ (like they have done in the past, ahhh, but past is no indication of the future as we all know) and you have 5% in your portfolio then that is adding another 1.5% to your total return in that year. Don't expect that kind of return consistently.
Cash can't do that, but cash is consistently there (yes, losing purchasing power but also lowering volatility overall). The issue is never maximizing return but rather optimizing return with the amount of risk and time horizon appropriate for you.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.